Description

Kazakhstan and Central Asia Country Risk Report Q1 2016 Description

Kazakhstan announced an ambitious privatisation programme, which is an important signal by the political establishment's willingness to embark on a market-friendly reform course. While high indebtedness and restructuring needs might impede swift implementation of the programme, it undoubtedly bodes well for the country's medium-to long-term economic development and diversification prospects.

President Almazbek Atambayev's Social Democratic Party (SDPK) will head the next government following the October 4 election, presaging continuity in economic and foreign policy. Its main challenges will be fighting corruption and mitigating externally generated economic headwinds caused by falling remittances and lower commodity prices.

Recent events in Tajikistan have confirmed our view that the deteriorating macroeconomic outlook would prompt the political and security establishment to intensify its authoritarian approach to real or perceived dissenting voices. This approach will backfire, fomenting even larger-scale resistance and even religious radicalisation, fostering a fertile ground for the spread of radical Islamism and for both bottom-up and intra-elite challenge to the regim.

The decision by the Turkmen authorities in the wake of lower hydrocarbon prices to dismantle core welfare benefits has signalled that the government may have a much more limited tolerance for a drop in gas export revenues than we previously anticipated. This means that the risk of manat devaluation over the next two years has materially increased, prompting us to readjust our forecast for the unit to average TMT3.6/USD in 2016, from TMT3.5/USD previously.

Central Asia is shaping as a region of growing geopolitical rivalry between global powers, whose attempts of the latter to curry favour with regional leaders will only cement further the autocratic tendencies of their regimes, putting political and economic liberalisation in the region further out of reach.

Major Forecast Changes

An unprecedented in its scale and scope round of privatisation announced by the Kazakh leadership has prompted us to adopt a moderately more optimistic outlook on the country's medium-to long-term economic development and diversification prospects, reflected in our modest upward real GDP growth revisions.